EU threatens new regulation on securities clearing

The European Union warns that it will act to improve securities clearing and settlement in the region if market players don’t do it voluntarily first.

“Unless market players come forward with effective and realistic changes to improve the clearing and settlement of securities in the EU, the European Commissioners for Competition and the Internal Market intend to propose action on the basis of EU competition and single market rules before the summer break,” the EU says in a statement.

“The current fragmented national monopolies in trading infrastructures such as exchanges, clearinghouses and securities depositaries, create high costs for the EU economy and represent significant impediments to efficient cross-border trading in the EU,” it notes. “The securities industry needs to accelerate work on removing a number of barriers significantly, and provide a firm timetable for change.”

Commissioners Neelie Kroes and Charlie McCreevy said today that they intended to come forward before the summer break with their joint proposals on improving the efficiency of cross-border clearing and settlement in the EU.

“No-one contests the need to address the high cost of and the corresponding difficulty of having access to cross-border clearing and settlement in the EU” stated Kroes and McCreevy. “We have not yet reached any definitive view on the precise measures we would propose to remedy this situation. It is clear, though, that the present system is untenable. Changes are going to have to be made. We believe the industry recognises this as well and we would encourage them to be part of the solution and not the problem”.

The commissioners said that before taking their final decision they would encourage market players to come forward with effective proposals to trigger the necessary changes. “Where possible, we would prefer to have market-led solutions which meet effective competition and internal market concerns,” they said. However, if there is no substantive move forward the commissioners made it clear that they would come forward with their choice of policy tools to address the issues before the summer break.

“For there to be more competition, particularly at the trading level, competitors need to be able to have access to “fungibility” in central counter-party arrangements: the positions of a single member on both platforms should be able to be offset against each other to produce a single collateral position and a single position for settlement,” it said. “This issue is one which affects all trading infrastructures, independently of their ownership structure. Some exchanges have already recognized this and taken steps to ensure that potential competitors are not prevented from entering the market. Others have not yet done so and are strongly encouraged to review this situation urgently.”